Coal prices to stay firm on higher power demand

The prices of coal in the domestic market are unlikely to see any correction in the near future even as international thermal prices are expected to stay subdued.

Coal India Ltd (CIL), the largest producer, feels an increase in power demand would boost offtake and strengthen prices.

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The coal behemoth expects its e-auction prices to go up both for the regulated and non-regulated sectors.

In the April-June quarter, CIL’s e-auction prices fell 10 per cent over the previous quarter, impacting its bottom line. The realisation was low primarily because of low demand and low global prices. However, things would not be stressed in the coming days, said a senior CIL official.

“The offtake situation is improving and the average coal realisation is expected to go up. As the demand for power is expected to rise, power producers would be in need of higher coal volumes and e-auction prices would firm up," he said.

The e-auction of coal accounts for 15-20 per cent of CIL’s volumes but contributes 60-70 per cent to the net profit. Coal-based thermal power generation in the country moved up 17 per cent in August (over August 2016) as hydro power output fell 12 per cent and nuclear power tanked by 36 per cent. Power generated from other sources also declined seven per cent in the month. The coal offtake grew 17.8 per cent in August.

Global seaborne thermal coal prices are recovering on the back of developments in China, says a report by FocusEconomics. “News of potential strikes in Chinese coal mines and a Chinese government crackdown on illegal mining activity has put pressure on supply," the report said. While the Chinese demand would drive up prices, the report predicts a subdued outlook for thermal coal prices, with the global shift to natural gas-fired power plants and an expected oversupply this year.

According to a recent report by Icra, international thermal coal prices are poised to remain under pressure for the rest of the year and soften as key importers like India, China, and South Korea are expected to cut imports.

From $102 per tonne at the end of August, spot thermal coal prices are projected at $75-80 in the rest of 2017 and can fall to $60-65 per tonne in 2018 and 2019. China has imposed curbs on coal imports at its smaller ports while South Korea has announced plans to phase out old coal-based capacities and shift to gas-based power and nuclear power.